Income Tax (Earnings and Pensions) Act 2003 section 623

Return of surplus employee additional voluntary contributions

Section 623 deals with the tax treatment of surplus additional voluntary contributions (AVCs) returned to members of approved pension schemes, treating such repayments as taxable pension income.

• When an approved pension scheme has surplus funds from employee additional voluntary contributions, any repayment of that surplus to the employee is classified as pension income and subject to income tax.
• The section applies to payments made to or for the benefit of employees, including former and future employees, under exempt approved retirement benefits schemes or relevant statutory schemes.
• To prevent double taxation, a returned surplus that falls within this section is not also taxed as a repayment of employee contributions or as a commutation of pension benefits.
• The rules also cover superannuation funds approved before 6 April 1980, which remain subject to specific regulations that are still in force.